Today I had independent conversations with two entrepreneurs at different stages of their journeys. One just exited his second company and is beginning to think about what problem he wants to solve next. The other is still building his first company. Both of them mentioned that they’d spent considerable time identifying what they need in an early core team and recruiting people who fit those criteria.

I went a bit deeper, and both revealed gaps in their abilities or experiences that could prevent them from being successful. They’re both smart, super talented, and successful—and very self-aware and upfront about their limitations.

No one is good at everything. We all have shortcomings. But not everyone will admit to them. That’s too bad because being transparent about shortcomings can actually help founders. Sounds counterintuitive, I know. Many founders think they have to be great at everything—superhuman, practically—but that’s not realistic or sustainable. Acknowledging their shortcomings can help them understand what gaps they need to fill to round out their team. Recruiting efforts can be more focused and attract candidates who know what they’re good at. And it supports a culture of teamwork—people pay attention to what the leader does and follow suit.

Founders who want to build great businesses should consider being transparent about their shortcomings. It’s a great way to turn something that could be perceived as a negative into a superpower that can propel you to new heights.

As a founder, I made tons of mistakes. (I often refer to this as stepping on landmines.) Recently I shared one of my more painful stories with a friend. He asked a few questions about why my decision proved incorrect, which I answered. He felt the flaws in my decision should have been apparent from the start and couldn’t understand why I’d made that decision.

The old saying that hindsight is 20/20 is true. Things are often crystal clear when you look backward. You usually have the benefit of complete information. Being in the middle of a situation is very different: you have imperfect information and, often, time constraints.

I explained to my friend what I had perceived the situation to be as it was unfolding versus what I later learned had actually happened. He then understood.

Making decisions with imperfect information is hard, and I’ve gotten it wrong lots of times. I try to make the best decision I can with the information I have. When I finally have the luxury of hindsight, I try not to focus on the outcome. Instead, I aim to learn. In my experience, regardless of the outcome, there’s always something to be learned when you can see everything more clearly.

Hindsight shouldn’t be used to second-guess or critique past decisions. Founders should be careful not to fall into this mental trap. It’s better used as a tool to help people understand what worked and didn't work so they can improve future decisions.

This weekend I had some great conversations with groups of people. Lots of catch-up chat, but people were also talking about shopping. A few things jumped out at me:

• Amazon – For years, I’ve heard people in social settings talk about how they find everything they need on Amazon. But this weekend, no one mentioned shopping at Amazon. Amazon is still a major online retailer and I’m sure many of these people still shop there regularly, but what they wanted to talk about was smaller merchants they’d found online.
• Specific items – People mentioned spending time researching and looking for specific items.
• Patience – When they found exactly what they were looking for, they were patient. The specific item was more important than finding something that could be delivered in a day or two.
• Wardrobe – Working from home has changed how people dress and how they think about their wardrobe. Many don’t think they’ll go back to having a work wardrobe and a nonwork wardrobe.

My “study” has a super-small sample size and isn’t scientific at all, but it got me thinking. Delivery speed and low cost have dominated how consumers shop for a long time, but this may be starting to change. So might how we outfit ourselves. Companies set dress codes and people adhered to those policies, which informed how and where they bought clothes. Now, people are setting their own individual dress codes and focusing on what matters to them.

I think we’re starting to see (or maybe I’m just noticing) a shift in the way consumers shop and why they shop. I’ll be watching this more closely. If this is a trend that continues, it could have a major impact on e-commerce and retail.

Today marks the start of the second half of 2021. I didn’t realize that 2021 is halfway over until a friend brought it to my attention today. It caught me off guard and got my wheels turning a bit. I reflected on how different from the beginning of the year—and a year ago—things are today.

I figured things would be different this year, but I didn’t anticipate this pace of change. If someone had told me in January that airlines would be canceling summer flights because they can’t find enough staff to meet the demand, I’m not sure I would have believed it. This is the same industry that, with empty flights, significantly cut capacity and received government assistance last year. But here we are today, and that’s exactly what’s happening.

My big takeaway today is that a lot can happen in a short time, and 2021 is a testament to that. I’m looking forward to what’s in store the second half of the year!

Yesterday I predicted that we’ll see a record number of e-commerce businesses sold this year. I shared why I think the timing is opportune for many founders to sell. A friend pointed out that it takes two sides to complete a transaction and my post didn’t address the buy side. He’s right.

I believe significantly more buyers will be looking to acquire e-commerce businesses doing less than $10 million in annual revenue. Here are my reasons:

• The pandemic accelerated the shift to e-ecommerce, and this trend will continue. Buyers who want to participate in this trend but don’t want to spend time catching up and building something from scratch will be interested in buying a business.
• We’re in a low-interest-rate environment. Cash is earning nearly nothing, as are savings accounts and other risk-free investments, so people are looking for other investments to earn returns on their money.
• Many other asset classes have appreciated significantly in the last year and a half. We’re at peak prices historically for many asset classes, and some investors aren’t sure how much upside appreciation is left. Multiples on businesses have increased as well, but a small business in a large market that’s growing quickly has the potential to appreciate significantly.
• Finally, sophisticated investors are raising large sums of money to buy these businesses.

E-commerce businesses have historically been viewed as less sexy than other types of businesses and have received low multiples. I think that will change this year!

Over the last year, I’ve chatted with friends who are seasoned e-commerce entrepreneurs. They saw their businesses explode. People were at home more than usual and ordered online instead of going to physical stores, so that makes sense. I’ve heard stories and read articles about e-commerce businesses having their best year ever.

I predict that this year we’ll see a record number of e-commerce businesses sold—specifically, those doing less than $10 million in annual revenue. I believe this for a lot of reasons, a big one being timing. Founders who’ve spent years building these businesses and recently have thought about exiting have a great opportunity. Businesses of this size are usually valued based on trailing-twelve-months financials. This means the valuation is largely based on how the business performed during the last twelve months—which have been record setting for a lot of these businesses. Many sellers may see this as the perfect time to cash in on their hard work.

I look forward to paying closer attention to the private market for these businesses and hope the founders who were tenacious and built great businesses are rewarded handsomely this year.

Before the pandemic, I regularly did a variety of physical fitness activities. During the past year and a half, I wasn’t comfortable doing them, so I stopped. A few months ago, I decided I wanted to work toward a new health and fitness routine that focused on outside activities. I set some goals for myself and committed to them. I started tracking my progress, and I shared my goals with others who could hold me accountable.

Today I reviewed some of the data, looking back at the progress I’ve made to date instead of ahead to the day my goals have been achieved. I celebrated some of the little wins I’ve had, which reenergized me.

Setting goals is key to a company being successful. It helps with alignment, focus, and a variety of other things. Working to achieve them is a journey that has its ups and downs. Along the way, it’s important for teams to take time to celebrate the progress they’ve made, even if they haven’t achieved their goals yet. Celebrating those mini wins along the way can help teams stay motivated and give them confidence that they can make it to the finish line.

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The last year and a half thrust the world into experimenting. It limited interactions and separated people from family and friends. For many, the separation crystalized the importance of relationships and in-person interactions. Companies were forced to embrace remote work to safely continue operations, and many workers opted to work remotely near the family and friends they missed—some for weeks or months at a time. The flexibility to do so added immense value to their personal lives. This kind of flexibility isn’t something that many workers have experienced before, and I don’t think they’ll want to give it up.

I anticipate that many people will leave full-time work as employees to become entrepreneurs and solopreneurs over the next eighteen months. The desire for flexibility and a better quality of life will drive many of these transitions. This group will create the next wave of lifestyle businesses.

Entrepreneurs will have lots of opportunities to help these lifestyle businesses succeed. Their founders will make time a top priority and will pay for products and services that save them time. Many of their businesses will be dispersed, so they’ll pay to be part of communities (physically or digitally) of like-minded people.

I’m excited and looking forward to watching this explosion in lifestyle businesses. The ripple effects from it could be big and reshape things in ways we never would’ve imagined.

A friend shared an article with me today. It’s about an institutional investor, ReAlpha, planning to spend $1.5 billion to buy 5,000 homes to rent out. I’ve followed institutional buyers of single-family homes for the last decade. Atlanta is one of the biggest markets for companies like Invitation Homes and American Homes 4 rent, both of which are publicly traded and own tens of thousands of single-family homes across the country that they rent out on a long-term basis. The strategy has worked well as home prices and rental rates have steadily increased since the financial crisis.

The article discussed a slightly different strategy: purchasing thousands of homes to rent out short-term on Airbnb. The idea isn’t new, but it hasn’t been pursued at scale by institutional investors. The customer acquisition strategy is intriguing. Instead of acquiring customers (i.e., renters) through traditional sales and marketing efforts, they plan to acquire them on Airbnb, which is a marketplace.

Marketplaces are places where buyers and sellers connect. Using a marketplace to acquire customers is an attractive and capital-efficient strategy for sellers. The fee (or take rate) is usually a fixed percentage of the revenue a buyer pays. That leads to a highly predictable customer acquisition cost. Sellers pay X cents for every dollar in revenue from buyers. Sellers don’t have to worry about paying to attract potential buyers who never pan out; they pay only to acquire revenue-producing customers. Sellers don’t even need to take on sales or marketing—they need only have the ability to service customers.

This approach has downsides, and the customer relationship is a big one. The marketplace owns the customer relationship. Buyers aren’t loyal to the seller they transact with; they’re loyal to the marketplace. Concentration is also a big risk. If you get all your customers from a single source that you don’t control, changes can significantly affect your revenue. Lots of stories circulate about businesses being crushed when a marketplace they rely on changes how listings are displayed or suspends their account.

If ReAlpha moves forward with these plans, it will be a huge growth opportunity for Airbnb. I’d imagine ReAlpha will seek discounts on Airbnb’s fees, but even so this could unlock a new product offering with the potential for massive scale in Airbnb’s platform.

I’ll be watching to see how this evolves.

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Companies aim to create value by solving a problem. Founders, to increase their chances of creating a solution that has value—i.e., that customers will pay for—should have a deep understanding of the problem. An interesting approach to this goal is incubating a company inside another company: A company has a problem. It builds something to solve it. Management realizes others have the same problem. The company begins selling its solution. The solution grows so quickly that it’s separated from the parent company to become a stand-alone entity. I know a few founders who’ve successfully incubated companies this way—and the new companies became massive over time.

I’ve noticed a few things about this approach. If the parent organization has ample resources (usually money and people), this can be a great way to get something off the ground without raising capital. If not, it can drain and burden the parent company. The legacy company’s leaders often are attracted to the new growth company because it has great potential. But managing both companies can become challenging. I’ve seen leaders put someone in place to run the legacy company while they focus on the growth company. This works well—if the right person can be found, which isn’t easy.  

I like this approach. It isn’t realistic in most companies, but when it is, it can lead to something big.